Challenger banks are looking to take on the established order by offering a primarily digital experience. One of the most exciting is Starling Bank. Here's what you need to know.

Banking on your smartphone is becoming the new norm. Here's what UK-based Starling Bank has to offer.

Personal banking has been going through some significant changes in recent years. With many people now preferring to manage their finances on their smartphone rather than going into physical branches, and paying for most things using either Apple Pay or Google Pay, a new breed of ‘challenger bank’ has taken the field.

Starling Bank is one such venture, offering the UK’s first app-only current account. We take a look at what it has to tempt you to switch from your current bank, and whether it poses any risk to your wealth.

What is a Challenger bank?

This is a term that’s appearing more readily in the finance market these days. As the name suggests, it represents new banking initiatives that are looking to challenge the established giants like HSBC, Lloyds, and Barclays.

Typically, these are focussed on smart technology solutions rather than the old branch-based model that can be expensive to setup and maintain.

With people doing more and more of their banking online, a challenger bank now offers a serious alternative, often with clever ideas and user interface designs that the traditional institutions are slow to roll out across their, admittedly much larger, customer base.

Starling is not the only challenger bank in the UK, with Monzo, Atom, and Revolut all growing in popularity.

How does Starling Bank work?

In every respect, a Starling Bank current account is the same as any other you’d find offered on the high street.

Wages are paid directly into it, interest is earned on a positive balance, you can set up standing orders, make digital payments and manage Direct Debits, plus you also receive a contactless Mastercard debit card to use at cashpoints and checkouts both in the UK and overseas.

The main difference is that everything is done through an app on your smartphone, as there are no branches at all. This has some real advantages as Starling has based its entire approach on this concept.

Visually, the Starling app is far more interesting that your standard online banking offering. The Pulse is an easy way to see how much money you’ve spent each day. It displays a circle with the total amount in the middle, then the perimeter is broken up with the amounts of each transaction and to whom it went.

This is made even more useful by the fact that Starling allows customers to see the state of their account in real-time, rather than updating at the end of the day like many other outlets. This means when you make or receive payments your account details are updated instantly, so you always know what you have available.

Due to Starling being part of the Faster Payments initiative, any money transfers are completed within minutes rather than the three days that many banks still need. It also allows Starling to offer the Settle Up feature, where you can quickly send money to friends or family, replete with a short message.

You can also set goals for your savings, complete with images to help motivate you. Saving for that trip to Tokyo? Place a picture of the Imperial Palace in the app and allocate money to the goal whenever you have money to spare. Starling keeps a running total so you know how close you’re getting.

The app helps you understand your spending by providing breakdowns of your outgoing that can be sorted into categories such as groceries, eating out, and others, plus users get notifications whenever a transaction takes place on their account.

The emphasis is very much on providing data to the customer, all of which is interactive and far more engaging that the tired old rows and columns method.

Starling has apps available for iOS or Android, and is also compatible with Apple Pay, Google Pay, Samsung Pay, Fitbit Pay, and Garmin Pay.

Any drawbacks?

Depending on your needs, there may be some. At the moment Starling Bank doesn’t seem to offer mortgages, so if you like to keep all of your finances in one place then this isn’t for you. The same is true of loans and credit cards.

Also, as there are no branches there is no way to sit down and discuss things face to face. Instead Starling Bank conducts customer service via live chat, although this is available 24/7 no matter where you are in the world.

Is Starling Bank safe?

Obviously, one of the major concerns when considering a bank is whether your money will be safe. What if it goes bust? Who will help?

The management at Starling Bank is drawn from experienced financial institutions, and it operates with authorisation from the Prudential Regulation Authority. The most important part to note is that it's covered by the Finance Services Compensation Scheme (FSCS), which means the government guarantees your money (up to £85,000) is safe should the bank become insolvent.

It's not necessary to make Starling your only bank account when you join. So, if you want to try out its services but aren’t ready to commit, then simply transfer money into a newly created account and take it for a trial run.